Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Establish Listing Standards Related To Recovery of Erroneously Awarded Incentive-Based Executive Compensation, 16487-16491 [2023-05442]
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Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97123; File No. SR–LTSE–
2023–01]
Self-Regulatory Organizations; LongTerm Stock Exchange, Inc.; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1, To
Establish Listing Standards Related To
Recovery of Erroneously Awarded
Incentive-Based Executive
Compensation
March 13, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
27, 2023, Long-Term Stock Exchange,
Inc. (‘‘LTSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change. On March 9,
2023, the Exchange filed Amendment
No. 1 to the proposed rule change,
which superseded and replaced the
proposed rule change in its entirety. The
proposed rule change, as modified by
Amendment No. 1, is described in Items
I and II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
LTSE is filing with the Commission a
proposed rule change as modified by
Amendment No. 1 3 to adopt Listing
Standards for the Recovery of
Erroneously Awarded Compensation, as
required by Rule 10D–1 of the Act.4 The
text of the proposed rule change is
available at the Exchange’s website, at
https://longtermstockexchange.com, at
the principal office of the Exchange, and
at the Commission’s public reference
room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 This Amendment No. 1 to the rule filing SR–
LTSE–2023–01 replaces SR–LTSE–2023–01 as
originally filed on February 27, 2023 and
supersedes that filing in its entirety.
4 17 CFR 240–10D–1.
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proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is filing this
amendment to SR–LTSE–2023–01
(‘‘Amendment 1’’) in order to (i) clarify
the purpose and rationale of the
proposed rule change; and (ii) make
technical changes to improve the
structure and clarity of the proposed
rules. This Amendment 1 supersedes
and replaces the initial rule proposal in
its entirety (the ‘‘Initial Proposal’’).
LTSE filed the Initial Proposal with
the Commission on February 27, 2023
pursuant to the provisions of Section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’),5 and Rule 19b–4 6
thereunder, proposing rule changes to
establish listing standards for the
recovery of erroneously awarded
executive compensation as required by
Rule 10D–1 of the Act.7
The Exchange is proposing
amendments to Chapter 14 of its rules
(LTSE Listing Rules) to establish listing
standards for the recovery of
erroneously awarded executive
compensation as required by Rule 10D–
1 and to address situations where a
listed company has not complied with
Rule 10D–1 and the Exchange’s listing
standards established pursuant thereto.
The Exchange proposes to amend
Rule 14.203, Prerequisites for Applying
to List on the Exchange, by adding new
paragraph (j), which will require that all
Companies listing on LTSE must, as
required by Rule 10D–1, comply with
the requirements of proposed Rule
14.207(f), Recovery of Erroneously
Awarded Compensation to Executive
Officers.
The Exchange is further proposing to
amend LTSE Rules 14.207, Obligations
for Companies Listed on the Exchange,
paragraph (f), to establish ‘‘Listing
Standards for the Recovery of
Erroneously Awarded Compensation.’’
The current text of paragraph (f) of Rule
14.207 will be repositioned into a new
paragraph (g).
On October 26, 2022, the Commission
adopted a new rule and rule
5 15
U.S.C. 78s(b)(1).
CFR 240–19b–4.
7 17 CFR 240–10D–1.
6 17
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amendments 8 to implement Section 954
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010
(the ‘‘Dodd Frank Act’’),9 which added
Section 10D to the Act. This final Rule
10D–1 adopted by the Commission
directs national securities exchanges
and associations that list securities to
establish listing standards that require
each issuer to adopt, comply with, and
disclose a written policy providing for
the reasonably prompt recovery, in the
event of required accounting
restatement, of incentive-based
compensation received by current or
former executive officers during the
three fiscal years preceding the date on
which the issuer is required to prepare
an accounting restatement to correct a
material error. As required by Rule 10D–
1 and proposed Rule 14.207(f) titled
‘‘Recovery of Erroneously Awarded
Compensation to Executive Officers,’’
any Company listed on LTSE must
adopt a compensation recovery policy,
comply with that policy, and provide
the required disclosures.
Additionally, as explained in the Rule
10D–1 adopting release 10 (the
‘‘Adopting Release’’), each listed issuer
is required to file its written recovery
policies as exhibits to its annual report;
indicate, by check boxes on the annual
reports, whether the financial
statements included in the filing contain
a correction of an error in previouslyissued financial statements and whether
any of the reported error corrections
constitute restatements that required a
recovery analysis under the issuer’s
recovery policies; and finally, to
disclose any actions taken through the
application of the recovery policies.
Rule 10D–1 requires that issuers
recover reasonably promptly the amount
of erroneously-awarded executive
compensation. Compliance by an issuer
with this obligation will be reviewed in
the context of each accounting
restatement prepared by the issuer, and
will include the means used to seek
recovery and whether such means are
appropriate based on the discrete
circumstances of each executive officer
who is determined to be subject to
recovery of erroneously awarded
compensation.
Rule 10D–1 became effective on
January 27, 2023; national securities
exchanges and national securities
associations that list securities were
8 See, Release Nos. 33–11126; 34–96159; IC–
34732; File No. S–7–12–15; 87 FR 73076 (November
28, 2022).
9 2 Public Law No. 111–203, 124 Stat. 1900
(2010).
10 Securities Exchange Act Release No. 96159
(October 26, 2022), 87 FR 73076 (November 28,
2022).
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required to file proposed listing
standards no later than February 27,
2023 and such listing standards must be
effective no later than November 28,
2023. Issuers subject to the Exchange’s
listing standards will have 60 days
following the effective date of such
standards to adopt a recovery policy.
As required by Rule 10D–1 and
proposed Rule 14.207(f), any Company
listed on LTSE must adopt a
compensation recovery policy, comply
with that policy, and provide the
required compensation recovery policy
disclosures.
The Exchange is proposing
amendments to Chapter 14 of its rules
(LTSE Listing Rules) to establish listing
standards for the recovery of
erroneously awarded executive
compensation as required by Rule 10D–
1.
The Exchange proposes to amend
Rule 14.203, Prerequisites for Applying
to List on the Exchange, by adding new
paragraph (j), which will require that all
Companies listing on LTSE must, as
required by Exchange Act Rule 10D–1,
comply with the requirements of Rule
14.207(f) (Recovery of Erroneously
Awarded Compensation to Executive
Officers).
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New Definitions
The Exchange is proposing to adopt
the specific definitions of certain terms
as contained in Rule 10D–1. These new
definitions are being proposed solely for
purposes of Rule 14.207(f). In new
subparagraph (A) of Rule 14.207(f)(1),
the Exchange defines ‘‘Executive
Officer’’ as the Company’s 11 president,
principal financial officer, principal
accounting officer (or the controller in
the event there is no principal
accounting officer), and vice-president
in charge of a principal business unit,
division, or function (such as sales,
administration, or finance), any other
officer who performs a policy-making
function, or any other person who
performs similar policy-making
functions for the Company. Executive
officers of the Company’s parent(s) or
subsidiaries are deemed executive
officers of the Company if they perform
such policy making functions for the
Company. In addition, when the
Company is a limited partnership,
officers or employees of the general
11 The Exchange notes that, throughout the
proposed rule text, it uses the term ‘‘Company’’
rather than ‘‘issuer’’ to apply consistent terminology
that is used throughout the Exchange’s Listing
Rules. Rule 14.002(a)(5) defines ‘‘Company’’ to
mean the issuer of a security listed or applying to
list on the Exchange. For purposes of the
Exchange’s listing rules, the term ‘‘Company’’
includes an issuer that is not incorporated, such as,
for example, a limited partnership.
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partner(s) who perform policy-making
functions for the limited partnership are
deemed officers of the limited
partnership. When the Company is a
trust, officers, or employees of the
trustee(s) who perform policy-making
functions for the trust are deemed
officers of the trust. Policy-making
function is not intended to include
policy-making functions that are not
significant. Identification of an
executive officer for purposes of this
Rule would include at a minimum
executive officers identified pursuant to
17 CFR 229.401(b).
Proposed subparagraph (B) of Rule
14.207(f)(1) defines ‘‘Financial
Reporting Measures’’ as those that are
determined and presented in
accordance with the accounting
principles used in preparing the
Company’s financial statements, and
any measures that are derived wholly or
in part from such measures. Stock price
and total shareholder return are also
financial reporting measures. A
financial reporting measure need not be
presented within the financial
statements or included in a filing with
the Commission.
In proposed subparagraph (C) of Rule
14.207(f)(1), the Exchange defines
‘‘Incentive-based Compensation’’ as any
compensation that is granted, earned, or
vested based wholly or in part upon the
attainment of a financial reporting
measure. Finally, proposed
subparagraph (D) of Rule 14.207(f)(1)
provides that the term ‘‘Received’’ with
respect to incentive-based compensation
as meaning that such compensation is
deemed received in the Company’s
fiscal period during which the financial
reporting measure specified in the
incentive-based compensation award is
attained, even if the payment or grant of
the incentive-based compensation
occurs after the end of that period. The
provision is intended to provide
clarification and avoid doubt when
determining when incentive based
compensation that is subject to the rule
was received.
Requirement To Adopt, Implement and
Disclose a Recovery Policy for
Incentive-Based Executive
Compensation
Proposed Rule 14.207(f)(2) requires
that every Company that lists its
securities on the Exchange must, no
later than 60 days of the effective date
of this rule, which is the date that the
Commission approves this rule filing
SR–LTSE–2023–01, adopt and comply
with a written policy requiring such
issuer to recover reasonably promptly
the amount of erroneously awarded
incentive-based compensation to any
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executive officer in the event that the
Company is required to prepare an
accounting restatement due to material
non-compliance of the Company with
any financial reporting requirement
under the securities laws, including any
required accounting restatement to
correct a material error in previously
issued financial statements that is
material to the previously issued
financial statements, or that would
result in a material misstatement if the
error were corrected in the current
period or left uncorrected in the current
period.
This provision is intended to align
with the requirements of Rule 10D–1
and embed in the Exchange’s listing
rules the requirement to establish and
enforce a written recovery policy as a
requirement for listing on LTSE.
In proposed Rule 14.207(f)(2)(B), the
Exchange requires that every Company
listed on the Exchange disclose its
written recovery policy as part of its
reporting obligations to the
Commission, as an exhibit to its Annual
Report, and to the Exchange. Companies
applying for initial listing must include
its written recovery policy as part of its
listing application. The Exchange will
not act on any new listing application
unless the recovery policy is included
with the initial listing application.
Proposed Rule 14.203(j), as discussed
above, also notes as part of the
prerequisites for applying to list on the
Exchange, as required by Rule 10D–1,
any Company listing on the Exchange
must comply with proposed rule
14.207(f).
In proposed Rule 14.207(f)(3),
Application of the Recovery Policy to
Executive Officers, the Exchange states
that the recovery policy shall apply to
all incentive-based compensation
received by a person: (A) after beginning
service as an executive officer of the
Company; (B) who served as an
executive officer at any time during the
performance period for that incentivebased compensation; (C) while the
Company had a class of securities listed
on a national securities exchange or a
national securities association; and (D),
during the three completed fiscal years
immediately preceding the date that the
Company is required to prepare an
accounting restatement as described in
proposed Rule 14.207(f). In addition to
the last three completed fiscal years, the
recovery policy must apply to any
transition period (that results from a
change in the Company’s fiscal year)
within or immediately following those
three completed fiscal years. However, a
transition period between the last day of
the Company’s previous fiscal year end
and the first day of its new fiscal year
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that comprises a period of nine to 12
months would be deemed a completed
fiscal year. A Company’s obligation to
recover erroneously awarded
compensation is not dependent on if or
when the restated financial statements
are filed.
For purposes of determining the
relevant recovery period, the Exchange
proposes in Rule 14.207(f)(4) that the
date that a Company is required to
prepare an accounting restatement as
described in paragraph (f) of the Rule is
the earlier to occur of: (A) the date the
Company’s board of directors, a
committee of the board of directors, or
the officer or officers of the Company
authorized to take such action if board
action is not required, concludes, or
reasonably should have concluded, that
the Company is required to prepare an
accounting restatement as described in
paragraph (f) of this Rule; or (B) the date
a court, regulator, or other legally
authorized body directs the Company to
prepare an accounting restatement as
described in paragraph (f) of this Rule.
Determining Amount of Incentive-Based
Compensation Subject to the Company’s
Recovery Policy
Proposed Rule 14.207(f)(5)(A) states
that the amount of incentive-based
compensation that must be subject to
the Company’s recovery policy
(‘‘erroneously awarded compensation’’)
is the amount of incentive-based
compensation received that exceeds the
amount of incentive-based
compensation that otherwise would
have been received had it been
determined based on the restated
amounts, and must be computed
without regard to any taxes paid.
Proposed subparagraph (B) states that,
for incentive-based compensation based
on stock price or total shareholder
return, where the amount of erroneously
awarded compensation is not subject to
mathematical recalculation directly
from the information in an accounting
restatement: (i) the amount must be
based on a reasonable estimate of the
effect of the accounting restatement on
the stock price or total shareholder
return upon which the incentive-based
compensation was received; and (ii) the
Company must maintain documentation
of the determination of that reasonable
estimate and provide such
documentation to the Exchange. These
provisions are intended to address and
clarify how erroneously awarded
compensation calculations will be
treated when it involves factors not
readily obtained through an analysis of
the accounting restatement.
Rule 10D–1 requires that a listed
Company recover the amount of
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erroneously-awarded incentive-based
compensation reasonably promptly 12
but does not specify the time by which
the Company must complete the
recovery of excess incentive-based
compensation. LTSE will determine
whether the steps that a Company is
taking constitutes compliance with its
compensation recovery policy. The
Company’s obligation to recover
erroneously-awarded incentive based
compensation reasonably promptly will
be assessed on a holistic basis with
respect to each such accounting
restatement prepared by the Company.
In evaluating whether the Company is
recovering erroneously-awarded
executive compensation reasonably
promptly, the Exchange will consider
whether the Company is pursuing the
appropriate balance of cost and speed in
determining the appropriate means to
seek recovery, and whether the
Company is securing recovery through
means that are appropriate based on the
particular facts and circumstances of
each executive officer that owes a
recoverable amount.
Exceptions to Requirement To Recover
Erroneously Awarded Compensation
Proposed Rule 14.207(f)(6),
Exceptions to Requirement to Recover
Erroneously Awarded Compensation,
allows for certain exceptions to the
application of the recovery policy.
Specifically, Companies must recover
erroneously awarded compensation in
compliance with its recovery policy
except to the extent that the conditions
described subparagraphs (A), (B), or (C)
of proposed Rule 14.207(f)(6) are met
and the Company’s Compensation
Committee, or in the absence of such a
committee, a majority of the
independent directors serving on the
board, has made a determination that
recovery would be impracticable in
consideration of those conditions.
Under subparagraph (A) of proposed
Rule 14.207(f)(6), the direct expense
paid to a third party to assist in
enforcing the policy would exceed the
amount to be recovered. Before
concluding that it would be
impracticable to recover any amount of
erroneously awarded compensation
based on expense of enforcement, the
Company must make a reasonable
12 The Commission stated that it: ‘‘recognize(s)
that what is reasonable may depend on the
additional cost incident to the recovery efforts. [The
Commission] expects[s] that issuers and their
directors and officers, in the exercise of their
fiduciary duty to safeguard the assets of the issuer
(including the time value of any potentially
recoverable compensation), will pursue the most
appropriate balance of cost and speed in
determining the appropriate means to seek
recovery.’’ See, Adopting Release at 73104.
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16489
attempt to recover such erroneously
awarded compensation, document such
reasonable attempt(s) to recover, and
provide that documentation to the
exchange or association. Under
subparagraph (B), recovery would
violate home country law where that
law was adopted prior to November 28,
2022. Before concluding that it would
be impracticable to recover any amount
of erroneously awarded compensation
based on violation of home country law,
the Company must obtain an opinion of
home country counsel, acceptable to the
Exchange, that recovery would result in
such a violation, and must provide such
opinion to the Exchange. Under
subparagraph (C), recovery would likely
cause an otherwise tax-qualified
retirement plan, under which benefits
are broadly available to employees of
the registrant, to fail to meet the
requirements of 26 U.S.C. 401(a)(13) or
26 U.S.C. 411(a) and regulations
thereunder.
In proposed Rule 14.207(f)(7),
Indemnification Of Executive Officers
by the Company Prohibited, the
Exchange makes clear that a Company is
prohibited from indemnifying any
executive officer or former executive
officer against the loss of erroneously
awarded compensation. This provision
is intended to assure that executive
officers who otherwise would be subject
to the recovery rule do not avoid a
financial consequence by having the
Company indemnify them. Absent this
provision, the recovery rule would lose
substantial impact and would not be as
effective in influencing executive
management actions.
Proposed Rule 14.207(f)(8) reinforces
the disclosure requirements and
provides that Companies are required to
file all disclosures with respect to its
Recovery Policy in accordance with the
requirements of the Federal securities
laws, applicable Commission filings,
and the Rules of the Exchange.
The Exchange further proposes
certain general exemptions in Rule
14.207(f)(9): that the requirements of
Rule 14.207(f) shall not apply to the
listing of any security issued by a unit
investment trust, as defined in 15 U.S.C.
80a–4(2) and any security issued by a
management company as defined in 15
U.S.C. 80(a)–4(3) that is registered under
Section 8 of the Investment Company
Act of 1940 (15 U.S.C. 80a–8, if such
management company has not awarded
incentive-based compensation to any
executive officer of the Company in any
of the last three fiscal years, or in the
case of a Company that has been listed
less than three fiscal years, since the
listing of the Company. These
exemptions are proposed to align with
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the exemptions provided in Rule 10D–
1.
As provided in Rule 10D–1, LTSE
proposes to require under Rule
14.207(f)(10) that each Company is
required to (i) adopt a policy governing
the recovery of erroneously awarded
compensation as required by this rule
no later 60 days following the effective
date of this rule (the date of the
Commission’s approval of SR–LTSE–
2023–01); and (ii) provide the
disclosures required by this rule and in
the applicable Commission filings on or
after such effective date of this rule (the
date of the Commission’s approval of
SR–LTSE–2023–01). Notwithstanding
the look-back requirements in Rule
14.207(f), a Company is only required to
apply the recovery policy to incentivebased executive compensation received
after the effective date of this rule (the
date of the Commission’s approval of
SR–LTSE–2023–01).
As proposed, a Company will be
subject to delisting by the Exchange if
it does not adopt, comply with, and
disclose its policy on recovery of
erroneously awarded executive
compensation. Any Company that has
failed to meet the requirements of the
Rule will not be allowed to list on LTSE
or, if listed, will be subject to provisions
of LTSE Rule 14.500 (Failure to Meet
Listing Standards) and the procedures
set forth in Rules 14.501, 14.502 and
14.503. The Exchange is proposing to
amend Rule 14.501(d)(2)(A)(iii) to
provide that a Company that has failed
to comply with the requirements of Rule
14.207(f) is required to submit to LTSE
a plan to regain compliance. The
Exchange proposes to utilize its existing
administrative process for addressing
corporate governance deficiencies for
violations of Rule 10D–1, subject to
certain amendments described below.
The Exchange believes that using the
existing process is appropriate in that it
applies a consistent process for
rectifying corporate governance
deficiencies to which listed Companies
are already subject.
However, the Exchange is proposing
amendments to Rule 14.500(b)(5), which
defines a Public Reprimand Letter, and
Rule 14.501, Notification of Deficiency
by LTSE Regulation, to exclude a
violation of Rule 10D–1 from the
deficiencies in listing standards for
which a Public Reprimand Letter is
appropriate under Rule 14.500 and state
that Public Reprimand Letters may not
be issued for violations of the listing
standards required by Rule 10D–1 and
proposed LTSE Rule 14.207(f). A
conforming amendment is proposed for
Rule 14.502, Review of Staff
Determination by the Listings Review
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Committee. Currently, the rule text in
Rule 14.502(1)(C), states that the
Exchange’s Listing Review Committee
may, where it deems appropriate: ‘‘issue
a decision that serves as a Public
Reprimand letter in cases where the
Company has violated an Exchange
corporate governance or notification
Listing standard (other than one
required by Rule 10A–3 of the Act) and
the Listing Review Committee
determines that delisting is an
inappropriate sanction. . . .’’ The
Exchange proposes to include Rule
10D–1 as a governance and notification
listing standard that is ineligible for the
disposition by a Public Reprimand
Letter upon a review or a delisting
proceeding by the Listings Review
Committee.
The Exchange is proposing these
amendments because it does not believe
that issuance of a Public Reprimand
Letter in situations where a listed
Company has failed to meet its
obligations regarding the recovery of
erroneously awarded executive
compensation is consistent with the
provisions of Rule 10D–1.
2. Statutory Basis
The Exchange believe that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,13
in general, and furthers the objectives of
Section 6(b)(5) of the Act,14 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. Further, the Exchange
believes that the proposal is not
designed to permit unfair
discrimination between issuers or to
regulate by virtue of any authority
conferred by the Act matters not related
to the purposes of the Act or the
administration of the Exchange, for the
reasons set forth below.
First, and importantly, the Exchange
is proposing to adopt these rules as
required under Section 10D of the Act
and Rule 10D–1. The requirement that
national securities exchanges that list
equity securities, such as LTSE, embed
the requirements of the statute and the
regulation into its listing rules is
intended to effectuate compliance and
ensure consistency across the rules of
13 Id.
14 15
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U.S.C. 78f(b)(5).
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every exchange. The Exchange believes
that these proposals protect investors
and the public interest by requiring
Companies, with certain exemptions,
that in the event the Company is
required to prepare an accounting
restatement, to recover reasonably
promptly erroneously awarded
incentive-based compensation paid to
current or former executive officers
based on any misstated financial
measure. These proposed amendments
will also help to foster effective
oversight of executive compensation
and provide increased accountability
and transparency to investors by not
allowing executive officers to retain
compensation that they were awarded
erroneously. The Exchange believes that
the recovery requirement will operate to
provide executive officers with an
increased incentive to take steps to
reduce the likelihood of inadvertent
misreporting and will reduce the
financial benefits to executive officers
who pursue impermissible accounting
methods, which the Commission
expects will further reduce such
behavior.15
LTSE further believes that the
proposal to provide that a Company that
had failed to comply with the
requirements of Rule 14.207(f) is
required to submit to the Exchange a
plan to regain compliance is consistent
with the investor protection objectives
of Section 6(b)(5) of the Act 16 because
the Exchange’s process for addressing
such deficiencies will follow the
established pattern used for similar
corporate governance deficiencies, to
which listed Companies are already
subject and are familiar with.
The Exchange believes that its
proposed rule change is fair and not
unfairly discriminatory. As stated in the
Adopting Release, ‘‘[t]o assure that
issuers listed on different exchanges are
subject to the same disclosure
requirements regarding erroneously
awarded compensation recovery,
amendments to the Commission’s
disclosure rules require all issuers listed
on any exchange to file their written
compensation policies as an exhibit to
their annual reports. . . .’’ 17
Additionally, because issuers listed on
different exchanges will be subject to
the same disclosure requirements
regarding erroneously awarded
compensation it alleviates any
additional compliance burdens that
could result, absent uniform treatment
across all exchanges. The Exchange
15 See, Rule 10D–1 Adopting Release at 87 FR
73077.
16 15 U.S.C. 78(b)(5).
17 See, 87 FR 73078.
E:\FR\FM\17MRN1.SGM
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Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices
further believes that the proposed
amendments are consistent with the
protection of investors and the public
interest by imparting uniformity of the
exchanges’ rules on erroneously
awarded executive compensation, as
required by Rule 10D–1.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
lotter on DSK11XQN23PROD with NOTICES1
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
1, is consistent with the Act. Comments
may be submitted by any of the
following methods:
17:04 Mar 16, 2023
Jkt 259001
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
LTSE–2023–01 on the subject line.
Paper Comments
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. In fact, as
discussed in the Statutory Basis section,
LTSE believes that the proposed
amendments will impose no burden on
competition in that every publicly
traded company will be required to
comply with the Rule 10D–1, and every
national securities exchange that lists
securities will be required to adopt
essentially the same rules regarding
erroneously awarded compensation as
part of their original and continued
listing requirements. Given these
factors, the Exchange does not believe
that there will be any burden on
competition.
VerDate Sep<11>2014
Electronic Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–LTSE–2023–01. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–LTSE–2023–01 and should
be submitted on or before April 7, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Sherry R. Haywood,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97130; File No. SR–MEMX–
2023–04]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Exchange’s Fee
Schedule To Adopt Market Data Fees
March 13, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
28, 2023, MEMX LLC (‘‘MEMX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend the Exchange’s fee schedule
applicable to Members 3 and nonMembers (the ‘‘Fee Schedule’’) pursuant
to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the
changes to the Fee Schedule pursuant to
this proposal on March 1, 2023.
The text of the proposed rule change
is provided in Exhibit 5.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
[FR Doc. 2023–05442 Filed 3–16–23; 8:45 am]
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Exchange Rule 1.5(p).
2 17
18 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00098
Fmt 4703
Sfmt 4703
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]]>Agencies
[Federal Register Volume 88, Number 52 (Friday, March 17, 2023)]
[Notices]
[Pages 16487-16491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05442]
[[Page 16487]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97123; File No. SR-LTSE-2023-01]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, To Establish Listing Standards Related To Recovery of Erroneously
Awarded Incentive-Based Executive Compensation
March 13, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 27, 2023, Long-Term Stock Exchange, Inc. (``LTSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change. On March 9, 2023, the
Exchange filed Amendment No. 1 to the proposed rule change, which
superseded and replaced the proposed rule change in its entirety. The
proposed rule change, as modified by Amendment No. 1, is described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
LTSE is filing with the Commission a proposed rule change as
modified by Amendment No. 1 \3\ to adopt Listing Standards for the
Recovery of Erroneously Awarded Compensation, as required by Rule 10D-1
of the Act.\4\ The text of the proposed rule change is available at the
Exchange's website, at https://longtermstockexchange.com, at the
principal office of the Exchange, and at the Commission's public
reference room.
---------------------------------------------------------------------------
\3\ This Amendment No. 1 to the rule filing SR-LTSE-2023-01
replaces SR-LTSE-2023-01 as originally filed on February 27, 2023
and supersedes that filing in its entirety.
\4\ 17 CFR 240-10D-1.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is filing this amendment to SR-LTSE-2023-01
(``Amendment 1'') in order to (i) clarify the purpose and rationale of
the proposed rule change; and (ii) make technical changes to improve
the structure and clarity of the proposed rules. This Amendment 1
supersedes and replaces the initial rule proposal in its entirety (the
``Initial Proposal'').
LTSE filed the Initial Proposal with the Commission on February 27,
2023 pursuant to the provisions of Section 19(b)(1) under the
Securities Exchange Act of 1934 (``Act''),\5\ and Rule 19b-4 \6\
thereunder, proposing rule changes to establish listing standards for
the recovery of erroneously awarded executive compensation as required
by Rule 10D-1 of the Act.\7\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(1).
\6\ 17 CFR 240-19b-4.
\7\ 17 CFR 240-10D-1.
---------------------------------------------------------------------------
The Exchange is proposing amendments to Chapter 14 of its rules
(LTSE Listing Rules) to establish listing standards for the recovery of
erroneously awarded executive compensation as required by Rule 10D-1
and to address situations where a listed company has not complied with
Rule 10D-1 and the Exchange's listing standards established pursuant
thereto.
The Exchange proposes to amend Rule 14.203, Prerequisites for
Applying to List on the Exchange, by adding new paragraph (j), which
will require that all Companies listing on LTSE must, as required by
Rule 10D-1, comply with the requirements of proposed Rule 14.207(f),
Recovery of Erroneously Awarded Compensation to Executive Officers.
The Exchange is further proposing to amend LTSE Rules 14.207,
Obligations for Companies Listed on the Exchange, paragraph (f), to
establish ``Listing Standards for the Recovery of Erroneously Awarded
Compensation.'' The current text of paragraph (f) of Rule 14.207 will
be repositioned into a new paragraph (g).
On October 26, 2022, the Commission adopted a new rule and rule
amendments \8\ to implement Section 954 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the ``Dodd Frank Act''),\9\
which added Section 10D to the Act. This final Rule 10D-1 adopted by
the Commission directs national securities exchanges and associations
that list securities to establish listing standards that require each
issuer to adopt, comply with, and disclose a written policy providing
for the reasonably prompt recovery, in the event of required accounting
restatement, of incentive-based compensation received by current or
former executive officers during the three fiscal years preceding the
date on which the issuer is required to prepare an accounting
restatement to correct a material error. As required by Rule 10D-1 and
proposed Rule 14.207(f) titled ``Recovery of Erroneously Awarded
Compensation to Executive Officers,'' any Company listed on LTSE must
adopt a compensation recovery policy, comply with that policy, and
provide the required disclosures.
---------------------------------------------------------------------------
\8\ See, Release Nos. 33-11126; 34-96159; IC-34732; File No. S-
7-12-15; 87 FR 73076 (November 28, 2022).
\9\ 2 Public Law No. 111-203, 124 Stat. 1900 (2010).
---------------------------------------------------------------------------
Additionally, as explained in the Rule 10D-1 adopting release \10\
(the ``Adopting Release''), each listed issuer is required to file its
written recovery policies as exhibits to its annual report; indicate,
by check boxes on the annual reports, whether the financial statements
included in the filing contain a correction of an error in previously-
issued financial statements and whether any of the reported error
corrections constitute restatements that required a recovery analysis
under the issuer's recovery policies; and finally, to disclose any
actions taken through the application of the recovery policies.
---------------------------------------------------------------------------
\10\ Securities Exchange Act Release No. 96159 (October 26,
2022), 87 FR 73076 (November 28, 2022).
---------------------------------------------------------------------------
Rule 10D-1 requires that issuers recover reasonably promptly the
amount of erroneously-awarded executive compensation. Compliance by an
issuer with this obligation will be reviewed in the context of each
accounting restatement prepared by the issuer, and will include the
means used to seek recovery and whether such means are appropriate
based on the discrete circumstances of each executive officer who is
determined to be subject to recovery of erroneously awarded
compensation.
Rule 10D-1 became effective on January 27, 2023; national
securities exchanges and national securities associations that list
securities were
[[Page 16488]]
required to file proposed listing standards no later than February 27,
2023 and such listing standards must be effective no later than
November 28, 2023. Issuers subject to the Exchange's listing standards
will have 60 days following the effective date of such standards to
adopt a recovery policy.
As required by Rule 10D-1 and proposed Rule 14.207(f), any Company
listed on LTSE must adopt a compensation recovery policy, comply with
that policy, and provide the required compensation recovery policy
disclosures.
The Exchange is proposing amendments to Chapter 14 of its rules
(LTSE Listing Rules) to establish listing standards for the recovery of
erroneously awarded executive compensation as required by Rule 10D-1.
The Exchange proposes to amend Rule 14.203, Prerequisites for
Applying to List on the Exchange, by adding new paragraph (j), which
will require that all Companies listing on LTSE must, as required by
Exchange Act Rule 10D-1, comply with the requirements of Rule 14.207(f)
(Recovery of Erroneously Awarded Compensation to Executive Officers).
New Definitions
The Exchange is proposing to adopt the specific definitions of
certain terms as contained in Rule 10D-1. These new definitions are
being proposed solely for purposes of Rule 14.207(f). In new
subparagraph (A) of Rule 14.207(f)(1), the Exchange defines ``Executive
Officer'' as the Company's \11\ president, principal financial officer,
principal accounting officer (or the controller in the event there is
no principal accounting officer), and vice-president in charge of a
principal business unit, division, or function (such as sales,
administration, or finance), any other officer who performs a policy-
making function, or any other person who performs similar policy-making
functions for the Company. Executive officers of the Company's
parent(s) or subsidiaries are deemed executive officers of the Company
if they perform such policy making functions for the Company. In
addition, when the Company is a limited partnership, officers or
employees of the general partner(s) who perform policy-making functions
for the limited partnership are deemed officers of the limited
partnership. When the Company is a trust, officers, or employees of the
trustee(s) who perform policy-making functions for the trust are deemed
officers of the trust. Policy-making function is not intended to
include policy-making functions that are not significant.
Identification of an executive officer for purposes of this Rule would
include at a minimum executive officers identified pursuant to 17 CFR
229.401(b).
---------------------------------------------------------------------------
\11\ The Exchange notes that, throughout the proposed rule text,
it uses the term ``Company'' rather than ``issuer'' to apply
consistent terminology that is used throughout the Exchange's
Listing Rules. Rule 14.002(a)(5) defines ``Company'' to mean the
issuer of a security listed or applying to list on the Exchange. For
purposes of the Exchange's listing rules, the term ``Company''
includes an issuer that is not incorporated, such as, for example, a
limited partnership.
---------------------------------------------------------------------------
Proposed subparagraph (B) of Rule 14.207(f)(1) defines ``Financial
Reporting Measures'' as those that are determined and presented in
accordance with the accounting principles used in preparing the
Company's financial statements, and any measures that are derived
wholly or in part from such measures. Stock price and total shareholder
return are also financial reporting measures. A financial reporting
measure need not be presented within the financial statements or
included in a filing with the Commission.
In proposed subparagraph (C) of Rule 14.207(f)(1), the Exchange
defines ``Incentive-based Compensation'' as any compensation that is
granted, earned, or vested based wholly or in part upon the attainment
of a financial reporting measure. Finally, proposed subparagraph (D) of
Rule 14.207(f)(1) provides that the term ``Received'' with respect to
incentive-based compensation as meaning that such compensation is
deemed received in the Company's fiscal period during which the
financial reporting measure specified in the incentive-based
compensation award is attained, even if the payment or grant of the
incentive-based compensation occurs after the end of that period. The
provision is intended to provide clarification and avoid doubt when
determining when incentive based compensation that is subject to the
rule was received.
Requirement To Adopt, Implement and Disclose a Recovery Policy for
Incentive-Based Executive Compensation
Proposed Rule 14.207(f)(2) requires that every Company that lists
its securities on the Exchange must, no later than 60 days of the
effective date of this rule, which is the date that the Commission
approves this rule filing SR-LTSE-2023-01, adopt and comply with a
written policy requiring such issuer to recover reasonably promptly the
amount of erroneously awarded incentive-based compensation to any
executive officer in the event that the Company is required to prepare
an accounting restatement due to material non-compliance of the Company
with any financial reporting requirement under the securities laws,
including any required accounting restatement to correct a material
error in previously issued financial statements that is material to the
previously issued financial statements, or that would result in a
material misstatement if the error were corrected in the current period
or left uncorrected in the current period.
This provision is intended to align with the requirements of Rule
10D-1 and embed in the Exchange's listing rules the requirement to
establish and enforce a written recovery policy as a requirement for
listing on LTSE.
In proposed Rule 14.207(f)(2)(B), the Exchange requires that every
Company listed on the Exchange disclose its written recovery policy as
part of its reporting obligations to the Commission, as an exhibit to
its Annual Report, and to the Exchange. Companies applying for initial
listing must include its written recovery policy as part of its listing
application. The Exchange will not act on any new listing application
unless the recovery policy is included with the initial listing
application. Proposed Rule 14.203(j), as discussed above, also notes as
part of the prerequisites for applying to list on the Exchange, as
required by Rule 10D-1, any Company listing on the Exchange must comply
with proposed rule 14.207(f).
In proposed Rule 14.207(f)(3), Application of the Recovery Policy
to Executive Officers, the Exchange states that the recovery policy
shall apply to all incentive-based compensation received by a person:
(A) after beginning service as an executive officer of the Company; (B)
who served as an executive officer at any time during the performance
period for that incentive-based compensation; (C) while the Company had
a class of securities listed on a national securities exchange or a
national securities association; and (D), during the three completed
fiscal years immediately preceding the date that the Company is
required to prepare an accounting restatement as described in proposed
Rule 14.207(f). In addition to the last three completed fiscal years,
the recovery policy must apply to any transition period (that results
from a change in the Company's fiscal year) within or immediately
following those three completed fiscal years. However, a transition
period between the last day of the Company's previous fiscal year end
and the first day of its new fiscal year
[[Page 16489]]
that comprises a period of nine to 12 months would be deemed a
completed fiscal year. A Company's obligation to recover erroneously
awarded compensation is not dependent on if or when the restated
financial statements are filed.
For purposes of determining the relevant recovery period, the
Exchange proposes in Rule 14.207(f)(4) that the date that a Company is
required to prepare an accounting restatement as described in paragraph
(f) of the Rule is the earlier to occur of: (A) the date the Company's
board of directors, a committee of the board of directors, or the
officer or officers of the Company authorized to take such action if
board action is not required, concludes, or reasonably should have
concluded, that the Company is required to prepare an accounting
restatement as described in paragraph (f) of this Rule; or (B) the date
a court, regulator, or other legally authorized body directs the
Company to prepare an accounting restatement as described in paragraph
(f) of this Rule.
Determining Amount of Incentive-Based Compensation Subject to the
Company's Recovery Policy
Proposed Rule 14.207(f)(5)(A) states that the amount of incentive-
based compensation that must be subject to the Company's recovery
policy (``erroneously awarded compensation'') is the amount of
incentive-based compensation received that exceeds the amount of
incentive-based compensation that otherwise would have been received
had it been determined based on the restated amounts, and must be
computed without regard to any taxes paid. Proposed subparagraph (B)
states that, for incentive-based compensation based on stock price or
total shareholder return, where the amount of erroneously awarded
compensation is not subject to mathematical recalculation directly from
the information in an accounting restatement: (i) the amount must be
based on a reasonable estimate of the effect of the accounting
restatement on the stock price or total shareholder return upon which
the incentive-based compensation was received; and (ii) the Company
must maintain documentation of the determination of that reasonable
estimate and provide such documentation to the Exchange. These
provisions are intended to address and clarify how erroneously awarded
compensation calculations will be treated when it involves factors not
readily obtained through an analysis of the accounting restatement.
Rule 10D-1 requires that a listed Company recover the amount of
erroneously-awarded incentive-based compensation reasonably promptly
\12\ but does not specify the time by which the Company must complete
the recovery of excess incentive-based compensation. LTSE will
determine whether the steps that a Company is taking constitutes
compliance with its compensation recovery policy. The Company's
obligation to recover erroneously-awarded incentive based compensation
reasonably promptly will be assessed on a holistic basis with respect
to each such accounting restatement prepared by the Company. In
evaluating whether the Company is recovering erroneously-awarded
executive compensation reasonably promptly, the Exchange will consider
whether the Company is pursuing the appropriate balance of cost and
speed in determining the appropriate means to seek recovery, and
whether the Company is securing recovery through means that are
appropriate based on the particular facts and circumstances of each
executive officer that owes a recoverable amount.
---------------------------------------------------------------------------
\12\ The Commission stated that it: ``recognize(s) that what is
reasonable may depend on the additional cost incident to the
recovery efforts. [The Commission] expects[s] that issuers and their
directors and officers, in the exercise of their fiduciary duty to
safeguard the assets of the issuer (including the time value of any
potentially recoverable compensation), will pursue the most
appropriate balance of cost and speed in determining the appropriate
means to seek recovery.'' See, Adopting Release at 73104.
---------------------------------------------------------------------------
Exceptions to Requirement To Recover Erroneously Awarded Compensation
Proposed Rule 14.207(f)(6), Exceptions to Requirement to Recover
Erroneously Awarded Compensation, allows for certain exceptions to the
application of the recovery policy. Specifically, Companies must
recover erroneously awarded compensation in compliance with its
recovery policy except to the extent that the conditions described
subparagraphs (A), (B), or (C) of proposed Rule 14.207(f)(6) are met
and the Company's Compensation Committee, or in the absence of such a
committee, a majority of the independent directors serving on the
board, has made a determination that recovery would be impracticable in
consideration of those conditions.
Under subparagraph (A) of proposed Rule 14.207(f)(6), the direct
expense paid to a third party to assist in enforcing the policy would
exceed the amount to be recovered. Before concluding that it would be
impracticable to recover any amount of erroneously awarded compensation
based on expense of enforcement, the Company must make a reasonable
attempt to recover such erroneously awarded compensation, document such
reasonable attempt(s) to recover, and provide that documentation to the
exchange or association. Under subparagraph (B), recovery would violate
home country law where that law was adopted prior to November 28, 2022.
Before concluding that it would be impracticable to recover any amount
of erroneously awarded compensation based on violation of home country
law, the Company must obtain an opinion of home country counsel,
acceptable to the Exchange, that recovery would result in such a
violation, and must provide such opinion to the Exchange. Under
subparagraph (C), recovery would likely cause an otherwise tax-
qualified retirement plan, under which benefits are broadly available
to employees of the registrant, to fail to meet the requirements of 26
U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
In proposed Rule 14.207(f)(7), Indemnification Of Executive
Officers by the Company Prohibited, the Exchange makes clear that a
Company is prohibited from indemnifying any executive officer or former
executive officer against the loss of erroneously awarded compensation.
This provision is intended to assure that executive officers who
otherwise would be subject to the recovery rule do not avoid a
financial consequence by having the Company indemnify them. Absent this
provision, the recovery rule would lose substantial impact and would
not be as effective in influencing executive management actions.
Proposed Rule 14.207(f)(8) reinforces the disclosure requirements
and provides that Companies are required to file all disclosures with
respect to its Recovery Policy in accordance with the requirements of
the Federal securities laws, applicable Commission filings, and the
Rules of the Exchange.
The Exchange further proposes certain general exemptions in Rule
14.207(f)(9): that the requirements of Rule 14.207(f) shall not apply
to the listing of any security issued by a unit investment trust, as
defined in 15 U.S.C. 80a-4(2) and any security issued by a management
company as defined in 15 U.S.C. 80(a)-4(3) that is registered under
Section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8, if
such management company has not awarded incentive-based compensation to
any executive officer of the Company in any of the last three fiscal
years, or in the case of a Company that has been listed less than three
fiscal years, since the listing of the Company. These exemptions are
proposed to align with
[[Page 16490]]
the exemptions provided in Rule 10D-1.
As provided in Rule 10D-1, LTSE proposes to require under Rule
14.207(f)(10) that each Company is required to (i) adopt a policy
governing the recovery of erroneously awarded compensation as required
by this rule no later 60 days following the effective date of this rule
(the date of the Commission's approval of SR-LTSE-2023-01); and (ii)
provide the disclosures required by this rule and in the applicable
Commission filings on or after such effective date of this rule (the
date of the Commission's approval of SR-LTSE-2023-01). Notwithstanding
the look-back requirements in Rule 14.207(f), a Company is only
required to apply the recovery policy to incentive-based executive
compensation received after the effective date of this rule (the date
of the Commission's approval of SR-LTSE-2023-01).
As proposed, a Company will be subject to delisting by the Exchange
if it does not adopt, comply with, and disclose its policy on recovery
of erroneously awarded executive compensation. Any Company that has
failed to meet the requirements of the Rule will not be allowed to list
on LTSE or, if listed, will be subject to provisions of LTSE Rule
14.500 (Failure to Meet Listing Standards) and the procedures set forth
in Rules 14.501, 14.502 and 14.503. The Exchange is proposing to amend
Rule 14.501(d)(2)(A)(iii) to provide that a Company that has failed to
comply with the requirements of Rule 14.207(f) is required to submit to
LTSE a plan to regain compliance. The Exchange proposes to utilize its
existing administrative process for addressing corporate governance
deficiencies for violations of Rule 10D-1, subject to certain
amendments described below. The Exchange believes that using the
existing process is appropriate in that it applies a consistent process
for rectifying corporate governance deficiencies to which listed
Companies are already subject.
However, the Exchange is proposing amendments to Rule 14.500(b)(5),
which defines a Public Reprimand Letter, and Rule 14.501, Notification
of Deficiency by LTSE Regulation, to exclude a violation of Rule 10D-1
from the deficiencies in listing standards for which a Public Reprimand
Letter is appropriate under Rule 14.500 and state that Public Reprimand
Letters may not be issued for violations of the listing standards
required by Rule 10D-1 and proposed LTSE Rule 14.207(f). A conforming
amendment is proposed for Rule 14.502, Review of Staff Determination by
the Listings Review Committee. Currently, the rule text in Rule
14.502(1)(C), states that the Exchange's Listing Review Committee may,
where it deems appropriate: ``issue a decision that serves as a Public
Reprimand letter in cases where the Company has violated an Exchange
corporate governance or notification Listing standard (other than one
required by Rule 10A-3 of the Act) and the Listing Review Committee
determines that delisting is an inappropriate sanction. . . .'' The
Exchange proposes to include Rule 10D-1 as a governance and
notification listing standard that is ineligible for the disposition by
a Public Reprimand Letter upon a review or a delisting proceeding by
the Listings Review Committee.
The Exchange is proposing these amendments because it does not
believe that issuance of a Public Reprimand Letter in situations where
a listed Company has failed to meet its obligations regarding the
recovery of erroneously awarded executive compensation is consistent
with the provisions of Rule 10D-1.
2. Statutory Basis
The Exchange believe that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and
furthers the objectives of Section 6(b)(5) of the Act,\14\ in
particular, because it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. Further, the Exchange believes that the proposal is
not designed to permit unfair discrimination between issuers or to
regulate by virtue of any authority conferred by the Act matters not
related to the purposes of the Act or the administration of the
Exchange, for the reasons set forth below.
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\13\ Id.
\14\ 15 U.S.C. 78f(b)(5).
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First, and importantly, the Exchange is proposing to adopt these
rules as required under Section 10D of the Act and Rule 10D-1. The
requirement that national securities exchanges that list equity
securities, such as LTSE, embed the requirements of the statute and the
regulation into its listing rules is intended to effectuate compliance
and ensure consistency across the rules of every exchange. The Exchange
believes that these proposals protect investors and the public interest
by requiring Companies, with certain exemptions, that in the event the
Company is required to prepare an accounting restatement, to recover
reasonably promptly erroneously awarded incentive-based compensation
paid to current or former executive officers based on any misstated
financial measure. These proposed amendments will also help to foster
effective oversight of executive compensation and provide increased
accountability and transparency to investors by not allowing executive
officers to retain compensation that they were awarded erroneously. The
Exchange believes that the recovery requirement will operate to provide
executive officers with an increased incentive to take steps to reduce
the likelihood of inadvertent misreporting and will reduce the
financial benefits to executive officers who pursue impermissible
accounting methods, which the Commission expects will further reduce
such behavior.\15\
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\15\ See, Rule 10D-1 Adopting Release at 87 FR 73077.
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LTSE further believes that the proposal to provide that a Company
that had failed to comply with the requirements of Rule 14.207(f) is
required to submit to the Exchange a plan to regain compliance is
consistent with the investor protection objectives of Section 6(b)(5)
of the Act \16\ because the Exchange's process for addressing such
deficiencies will follow the established pattern used for similar
corporate governance deficiencies, to which listed Companies are
already subject and are familiar with.
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\16\ 15 U.S.C. 78(b)(5).
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The Exchange believes that its proposed rule change is fair and not
unfairly discriminatory. As stated in the Adopting Release, ``[t]o
assure that issuers listed on different exchanges are subject to the
same disclosure requirements regarding erroneously awarded compensation
recovery, amendments to the Commission's disclosure rules require all
issuers listed on any exchange to file their written compensation
policies as an exhibit to their annual reports. . . .'' \17\
Additionally, because issuers listed on different exchanges will be
subject to the same disclosure requirements regarding erroneously
awarded compensation it alleviates any additional compliance burdens
that could result, absent uniform treatment across all exchanges. The
Exchange
[[Page 16491]]
further believes that the proposed amendments are consistent with the
protection of investors and the public interest by imparting uniformity
of the exchanges' rules on erroneously awarded executive compensation,
as required by Rule 10D-1.
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\17\ See, 87 FR 73078.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. In fact, as
discussed in the Statutory Basis section, LTSE believes that the
proposed amendments will impose no burden on competition in that every
publicly traded company will be required to comply with the Rule 10D-1,
and every national securities exchange that lists securities will be
required to adopt essentially the same rules regarding erroneously
awarded compensation as part of their original and continued listing
requirements. Given these factors, the Exchange does not believe that
there will be any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-LTSE-2023-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-LTSE-2023-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-LTSE-2023-01 and should be submitted on
or before April 7, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05442 Filed 3-16-23; 8:45 am]
BILLING CODE 8011-01-P
